The downside to deflation in a debt-based monetary system?

[Travlyr]

You jest.

It worked in the 30's when 80% of the people were rural and 20% in the city.

Today its 90% urban and 10% rural.

If you have an internet connection, you should download the first episode of the original "Connections" a BBC series of how things are interlinked.

He demonstrates perfectly what would happen if electricity was not available - and the unwinding stops at the point of the plow - in other words, you will live if you know how to hook an ox to a plow.

Even if you had an ox and a plow (which you probably don't) you do not know how to do this, and neither do I nor Steven nor anyone else here.

We would die.

Now, I do not believe this will happen as the biggest losers in this unwinding is the elite - the higher up the further the fall - but that does not mean it can't happen.

PS: You should also review the project called "Dark Winter", a scenario of a biological attack.

What is interesting about that was the massive disaster to the nation - assumed to be the attack itself - was minor to its consequence.

Everyone stayed home which collapsed the division of labor, and within weeks -even though death from the attack was small- the nation was in total collapse as the economy imploded.

So severly, that they ended the scenario experiment early, as there was no point in going on after the nation was wiped out....not by the bug, but by the starvation.

I'm not saying that the government can't kill us all off. They have pretty much proven they can do that by killing off over 300,000,000 people in the 20th century. That's democide. But the dollar dying isn't going to do it. Zimbabwe and Argentina are recent examples of how barter succeeds and eventually the free-market defaults back to gold & silver money.

[Black Flag]

I grew up in Amish community. Their garden will thrive, their crops will grow, their generators will run, their furniture will be assembled, their butchers will butcher, their homes will be candlelit, and on and on and on. Sure, people who haven't prepared will struggle.

But we are not all going to die when the dollar dies.

True, not all.

Only millions.

[Black Flag]

Zimbabwe and Argentina are recent examples of how barter succeeds and eventually the free-market defaults back to gold & silver money.

First, the US ain't either of those countries.

Zimbabwe is 95% rural - and they weren't far from subsistence level living to start with - they did not have a high division of labor at all. It is very dangerous to assume their case would be the US case

Argentina is a very small economy, a $435 billion GDP - compared the US 15.1 TRILLION - do not, again, make a mistake believing their scenario is at all representative to the US

[seraphson]

Great responses though I want to dig a bit on the responses of credit not being created during the housing bubble.
I'm fairly new to the concept of debt-based money (couldn't you tell?) and I watched a video I found Money As Debt to get a better understanding

Around the 13:50 point they mention that using the 9:1 reserve ratio the bank can "conjure" up to 9x the "money" the bank has. Is this video wrong or is my take on their explanation not right?

[Black Flag]

Great responses though I want to dig a bit on the responses of credit not being created during the housing bubble.
I'm fairly new to the concept of debt-based money (couldn't you tell?) and I watched a video I found Money As Debt to get a better understanding

Around the 13:50 point they mention that using the 9:1 reserve ratio the bank can "conjure" up to 9x the "money" the bank has. Is this video wrong or is my take on their explanation not right?

Oh my - this is why this thread is so long!

To start with, begin your thinking with the concept of "leverage".

If I had a gold coin, and went to you and borrowed $1000 with it as collateral, then went to Steven and did the same thing, and then to Travlyr and did the same thing - that coin has been leveraged to get $3,000 in borrowed cash... ok?

Note some things here: no one "printed" or "created" any money, or gold coins. There is not 3 "thin air" gold coins out there - there is only 1 - but it has been pledged 3 times over.

Now, you'd see that act as fraudulent - but let's not get into that right now.

This is not exactly what the bank does with your deposit - there are some other details - but just keep in mind what I said above - just because the coin has been pledged three times over, does not create gold coins out of thin air.

Everything is always real - there is no fantasy or magic in banking. (Which is why I cringe when I see the words "conjure" or "money out of thin air")

When you deposit your money in a bank, you surrender the ownership of that money to the bank - it is no longer yours.
In return you get a slip of paper that says one of two things:
1) In X number of months, we will give you money back of this amount plus this interest
or
2) On your demand, we will give your money back of what ever amount up to what is recorded on your account.

We will focus on (2).
Now, watch and follow the real money - as it is the only thing that exists

You can think of it this way: there is a page in a book that says "The bank owes Seraphson X amount of money"
Do you think that page in a book is money? ... well, no. No more than an IOU between friends is "money".

So let's say you give your money, $100, to the bank, they write that down and give a piece of paper, and IOU (bank deposit slip).

It is now the bank's money.

The bank uses THEIR money to make loans.
The law says they need to take 10% and keep it in reserve, so they put $10 of real money into an account at the FED called "bank reserves".

Now they have $90 of real money.

The lend it out as a loan, say to me.
I borrow $90 because I want to buy something and I do not have enough money.

People borrow money to spend money, so that is what the borrower does - spend it - and it is real money - $90.
So the bank gives me MY money - and I give them a piece of paper that says "I will pay you back" - like the IOU the bank gave to the depositor, I give to the bank.

It is now my money ($90).

The guy I bought my stuff from now has $90 in his hand and I have his stuff.

It is now his money ($90)

What does he do?
He deposits it in the bank.

The bank takes his $90, and records in a book "Bank owes Jack $90 on demand" and gives Jack an IOU.

It is now the banks money ($90).

To loan it out, the bank needs to put 10% at the Federal Reserve ($9)

They have now $81 of real money that they can loan out....

...and so on.

Do this over and over.... eventually:

- all the real money sits in the reserve at the FED.

- there are a bunch of IOU's out there
- about $900 of IOU's of the bank to depositors (with interest)
- about $900 of IOU's to the bank from borrowers (with interest)

But all the money ($100) is sitting in the reserve at the FED

[Travlyr]

Great responses though I want to dig a bit on the responses of credit not being created during the housing bubble.
I'm fairly new to the concept of debt-based money (couldn't you tell?) and I watched a video I found Money As Debt to get a better understanding

Around the 13:50 point they mention that using the 9:1 reserve ratio the bank can "conjure" up to 9x the "money" the bank has. Is this video wrong or is my take on their explanation not right?

Yes, that's how it works. It is much like the shoe store which has one pair of boots and advertises them online. They sell the boots to 9 different customers. As it turns out 8 of the 9 customers don't care if they ever get their boots so they do not demand either their money back or the boots. If one of them do complain and threaten court proceedings, then the shoe store guy steals another pair of boots and makes delivery. If all 9 of them demand their boots, then the shoe store guy moves to Paraguay.

It's a theft ring of the highest order. Elastic money is very clever stuff. Daddy Warbucks was a wealthy man.

[angelatc]

I would say to sum up the mainstream economic thought, that deflation causes people to not spend their money because they know if they wait they will be able to afford more in the future.

It also makes it next to impossible for companies to raise their prices, which is viewed as a bad thing by Wall Street.

[Black Flag]

I would say to sum up the mainstream economic thought, that deflation causes people to not spend their money because they know if they wait they will be able to afford more in the future.

It also makes it next to impossible for companies to raise their prices, which is viewed as a bad thing by Wall Street.

Mainstream economic thought is wrong - people need to spend money to live and prosper.

Price companies charge for their goods is independent of deflation - a Ferrari isn't going to be sold for $10.....

Remember the interconnection of money to goods is NOT that money imputes value to goods - human being impute value to goods.

Money is merely another economic good, so let's remove it out of the calculation, since people get all muddled about it.

Trade a Ferrari for some apples - it all depends on what you value your crop of apples for so to establish the number of apples in exchange for the Ferrari.

Price is merely a reference that we use to measure the quantities necessary for one good to be traded for another - and we use money to establish that reference, so we price things in terms of the amount of money.

[Black Flag]

...carrying on...

There are a bunch of IOU's out there
- about $900 of IOU's of the bank to depositors (with interest)
- about $900 of IOU's to the bank from borrowers (with interest)

But all the real money ($100) is sitting in the reserve at the FED

................

So at this stage, there is nothing really weird or magical or conjured up here....

From an accounting perspective, the bank is pledged to return $900 to depositors, but that is balanced with the loans and borrowers who have pledged to pay the bank $900 - the net (ignoring paid interest difference) is $0.

So again to be clear there is no magic here, no conjuring, no "thin air money".

Therefore, the only issue and risk, is the timing and/or the defaults

If everyone pays off, nothing amiss happens.

If one of the parties fail to pay, it is annoying.....
So loan loop 5, the borrower borrowed about $30 (that is all about what is left available of real money still in the hands of the bank, and not stored at the FED).

He fails to repay and reneges - the loan is lost.

...as long as a depositor does not demand his money back.... no problem ... this is an accounting write off.

The next new depositor comes along and deposits $100. The bank simply takes a part of this money, and stuffs it into the Fed reserve as an addition so to cover the loss position... no sweat, life goes on and the bank continues to lend out the remainder as above....

Ok?

[Roy L]

...because it is not money! Wow! What a revelation!

Money is by definition what is generally accepted in exchange. As demand deposit contents are generally accepted in exchange, they are money.

[Roy L]

Do not make another post unless you can prove your crackpot theory of banking by using the monopoly set.

Your monopoly set idea does not accurately simulate modern banking or money, sorry.

[Roy L]

No sir that is not at all how it works.

Yes, it is.

The bank for any loan must withdraw the money from its own cash account - which it holds from the deposits of the customer cash accounts (among other sources, such as share capital etc.)

That is how it works for a merchant bank or investment bank. It is not how it works for commercial banks under the debt money system.

No bank in the world merely types digits into someone's account to make a loan!

See "Modern Money Mechanics" published by the US Federal Reserve.

You, too, are totally confused by digits in a computer vs. paper.

They are quite different. Obviously.

No, it is NOT MONEY and it is ACCOUNT ENTRIES!

As the contents of demand deposit accounts are generally accepted in exchange, they are by definition money.

I will suggest that you do not understand the banking industry.

As they say in Japan, "It's mirror time!"

[Roy L]

Wealth for "nothing"... eek!

If you look at the immense wealth banksters pocket, what have they produced of commensurate value in return?

Get out the monopoly set and show me where this money creation happens.

You can't simulate bank creation of debt money with a Monopoly set.

Of course this is a fiat money system!

No, it is not.

Money is manufactured on demand without physical restraint.

But it is created as debt, not currency.

Banks do not create money.

See "Modern Money Mechanics," published by the US Federal Reserve.

They lend depositor's money,

No, customer deposits are used as reserves, against which to create debt money.

and they do need borrowers because that is how a bank normally makes its money.

By creating debt money on which to charge interest. Right.

Because they are scared to death you won't be able to pay it back.

OK, so you agree you were wrong. Good.

Fannie is doing no such thing.

"The Federal National Mortgage Association (Fannie Mae) is the nation’s largest mortgage buyer"

http://topics.nytimes.com/top/news/b...mae/index.html

[Black Flag]

Your monopoly set idea does not accurately simulate modern banking or money, sorry.

Yes it does

[Black Flag]

Roy, You are a crackpot

[Black Flag]

By creating debt money on which to charge interest. Right.

There is no such thing as debt money.

There is money.

[Black Flag]

Money is by definition what is generally accepted in exchange. As demand deposit contents are generally accepted in exchange, they are money.

No.

We do not price things based your promise to pay.

We price things in terms of money

You are ignorant in being unable to differentiate between a debt instrument like a IOU or a Promissory Note and money

[Black Flag]

Mises’s definitions of money - the most marketable commodity

and credit -the exchange of present goods for hoped-for future goods.

[Roy L]

No.

Yes.

We do not price things based your promise to pay.

Ignoratio elenchi fallacy.

We price things in terms of money

Including demand deposits, which are denominated in AND CONTAIN money.

You are ignorant in being unable to differentiate between a debt instrument like a IOU or a Promissory Note and money

No, Captain Ignorance, it is YOU who are unable to distinguish between a promissory note or IOU, neither of which is generally accepted in exchange, and a demand deposit, which is.

[Roy L]

Mises’s definitions of money - the most marketable commodity

That's fine for commodity money, like gold, cattle or cowrie shells, but not for fiat money or debt money.

[Roy L]

There is no such thing as debt money.

Whenever deposits or deposit certificates are generally accepted in exchange, there is by definition debt money.

[Roy L]

Yes it does

No, it doesn't.

[Paul Or Nothing II]

Okay...

Not sure how this exploded into 18 pages but perhaps I should rephrase the question.
What exactly does deflation do in a debt-based money system?
Is it any more different than say a gold standard money system?
Deflation is usually considered a balancing behavior to reach equilibrium in an inflated free market system; so just enough deflation to reach equilibrium is good; too much is obviously bad.
In our current deb-based money system why does Bernanke want housing prices back up? Is it because at the current pricing levels they don't pay back the money that was credited into existence with their construction?

Great responses though I want to dig a bit on the responses of credit not being created during the housing bubble.
I'm fairly new to the concept of debt-based money (couldn't you tell?) and I watched a video I found Money As Debt to get a better understanding

Around the 13:50 point they mention that using the 9:1 reserve ratio the bank can "conjure" up to 9x the "money" the bank has. Is this video wrong or is my take on their explanation not right?

The basics can be had from even a basic source like Wikipedia

http://en.wikipedia.org/wiki/Money_supply


free image hosting

Fractional-reserve banking
Main article: Fractional-reserve banking

The different forms of money in government money supply statistics arise from the practice of fractional-reserve banking. Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created. This new type of money is what makes up the non-M0 components in the M1-M3 statistics. In short, there are two types of money in a fractional-reserve banking system[16][17]:
1. central bank money (obligations of a central bank, including currency and central bank depository accounts)
2. commercial bank money (obligations of commercial banks, including checking accounts and savings accounts)

In the money supply statistics, central bank money is MB while the commercial bank money is divided up into the M1-M3 components. Generally, the types of commercial bank money that tend to be valued at lower amounts are classified in the narrow category of M1 while the types of commercial bank money that tend to exist in larger amounts are categorized in M2 and M3, with M3 having the largest.

In the US, reserves consist of money in Federal Reserve accounts and US currency held by banks (also known as "vault cash").[18] Currency and money in Fed accounts are interchangeable (both are obligations of the Fed.) Reserves may come from any source, including the federal funds market, deposits by the public, and borrowing from the Fed itself.[19]

A reserve requirement is a ratio a bank must maintain between deposits and reserves.[20] Reserve requirements do not apply to the amount of money a bank may lend out. The ratio that applies to bank lending is its capital requirement

Example

Note: The examples apply when read in sequential order.

M0
Laura has ten US $100 bills, representing $1000 in the M0 supply for the United States. (MB = $1000, M0 = $1000, M1 = $1000, M2 = $1000)
Laura burns one of her $100 bills. The US M0, and her personal net worth, just decreased by $100. (MB = $900, M0 = $900, M1 = $900, M2 = $900)

M1
Laura takes the remaining nine bills and deposits them in her checking account (current account) at her bank. (MB = $900, M0 = 0, M1 = $900, M2 = $900)
The bank then calculates its reserve using the minimum reserve percentage given by the Fed and loans the extra money. If the minimum reserve is 10%, this means $90 will remain in the bank's reserve. The remaining $810 can only be used by the bank as credit, by lending money, but until that happens it will be part of the banks excess reserves.
The M1 money supply increased by $810 when the loan is made. M1 money has been created. ( MB = $900 M0 = 0, M1 = $1710, M2 = $1710)
Laura writes a check for $400, check number 7771. The total M1 money supply didn't change, it includes the $400 check and the $500 left in her account. (MB = $900, M0 = 0, M1 = $1710, M2 = $1710)
Laura's check number 7771 is accidentally destroyed in the laundry. M1 and her checking account do not change, because the check is never cashed. (MB = $900, M0 = 0, M1 = $1710, M2 = $1710)
Laura writes check number 7772 for $100 to her friend Alice, and Alice deposits it into her checking account. MB does not change, it still has $900 in it, Alice's $100 and Laura's $800. (MB = $900, M0 = 0, M1 = $1710, M2 = $1710)
The bank lends Mandy the $810 credit that it has created. Mandy deposits the money in a checking account at another bank. The other bank must keep $81 as a reserve and has $729 available for loans. This creates a promise-to-pay money from a previous promise-to-pay, thus the M1 money supply is now inflated by $729. (MB = $900, M0 = 0, M1 = $2439, M2 = $2439)
Mandy's bank now lends the money to someone else who deposits it on a checking account on yet another bank, who again stores 10% as reserve and has 90% available for loans. This process repeats itself at the next bank and at the next bank and so on, until the money in the reserves backs up an M1 money supply of $9000, which is 10 times the M0 money. (MB = $900, M0 = 0, M1 = $9000, M2 = $9000)

M2
Laura writes check number 7774 for $1000 and brings it to the bank to start a Money Market account (these do not have a credit-creating charter), M1 goes down by $1000, but M2 stays the same. This is because M2 includes the Money Market account in addition to all money counted in M1.

Foreign Exchange
Laura writes check number 7776 for $200 and brings it downtown to a foreign exchange bank teller at Credit Suisse to convert it to British Pounds. On this particular day, the exchange rate is exactly USD 2.00 = GBP 1.00. The bank Credit Suisse takes her $200 check, and gives her two £50 notes (and charges her a dollar for the service fee). Meanwhile, at the Credit Suisse branch office in Hong Kong, a customer named Huang has £100 and wants $200, and the bank does that trade (charging him an extra £.50 for the service fee). US M0 still has the $900, although Huang now has $200 of it. The £100 notes Laura walks off with are part of Britain's M0 money supply that came from Huang.
The next day, Credit Suisse finds they have an excess of GB Pounds and a shortage of US Dollars, determined by adding up all the branch offices' supplies. They sell some of their GBP on the open FX market with Deutsche Bank, which has the opposite problem. The exchange rate stays the same.

The day after, both Credit Suisse and Deutsche Bank find they have too many GBP and not enough USD, along with other traders. Then, To move their inventories, they have to sell GBP at USD 1.999, that is, 1/10 cent less than $2 per pound, and the exchange rate shifts. None of these banks has the power to increase or decrease the British M0 or the American M0; they are independent systems.

Some politicians have spoken out against the Federal Reserve's decision to cease publishing M3 statistics and have urged the U.S. Congress to take steps requiring the Federal Reserve to do so. Congressman Ron Paul (R-TX) claimed that "M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation."

So there's "central bank money" & "commercial bank money" which are basically "obligations" as in promises to pay gold. Formerly, under gold-standard, notes were an IOU & since it was gold-backed, it was "IOU gold", after the gold-standard was taken out, it's since been "IOU.....nothing"
Even during those days, banks pyramided on top of gold through fractional-reserve-banking & issued more "receipts" than they'd gold & that's what often led to bank-runs because they wouldn't have the gold when people tried to cash in their notes for gold because they usually lend it out

Fractional-reserve-banking is problematic when banks lend against demand-deposits (it's ok to lend time-deposits in any system) which due to re-depositing & re-lending of the same causes an "illusion" of there being more money than there actually is & that fools market-participants into thinking they're richer than they actually are & they spend more lavishly than they otherwise would have & the resultant increased demand causes a rise in prices, which in turn causes producers to invest & try to produce more than they would have & eventually the frenzy ends when the "correction" starts to set in & then the moneysupply tries to shrink back to equilibrium & then of course, central-banks get all busy trying to prevent the catastrophy by re-inflating the bubble & so on

Consider the initial $100 in green color as 100 ounces if you will if that would help your understanding & see how fractional-reserve-banking creates the illusion, it will also answer your question about banks leveragin 1x9, it's due to 10% reserve-requirement & as you can see banks keep 10% of every "new" deposit & lend the rest & that way demand-deposits are re-deposited & re-lent which causes the wider moneysupply to increase & fools the market-participants

Yes, and for reasons I already explained. A "gold standard" only means that gold is "valued" in weight and purity - not "price" (the exchange value against anything else).

Fractional reserve lending is a mechanism to circumvent the gold standard, thus artificially manipulating the value of gold. The exchange value of gold is distorted and manipulated by conflating mathematically, physically impossible contradictory claims to the same gold, and future promises to pay, albeit with future gold. Under fractional reserve lending, it is possible for the paper (or column entries) that deliberately MISrepresents the amount real gold to outnumber the real gold many times over. It is not a case where real money happens to be in use by others. It is a case where FICTIONAL money is in use by others, but passing itself off as real money, and all because it has a trail leading back to an original deposit -- which was loaned out over and over again to different parties over the same time period.

Again, see how FRB works - even under a gold standard - slightly different than the one I posted earlier, note the red arrows showing the first part of the cycle, and the bottom line numbers, how $100 (or 100 ANYTHING) is inflated by FRB:

MYTH about "debt-money" - A lot of conspiracists & people who have ulterior communist/socialist motives are trying to peddle the myth that so long as there's interest, the debtors can't pay back their debt, etc but that's pure nonsense because money is NOT static, it's dynamic & it circulates so there's no basis for such arguments, but yes, as mentioned before by others, it gets harder to pay off debt in deflating economy, that is, the deflation preceded by inflationary boom of fractional-reserve-banking & that deflates pretty quickly & can be troublesome but the deflation under a gold-standard WITHOUT fractional-banking will have GRADUAL deflation as supply of goods & services outpaces the supply of gold & due to which, savings will be worth more & more into the future

Here's the link about "debt money" & interest - http://mises.org/daily/4569

About how Fed & Treasury & debt brings "money" into existence - http://mises.org/daily/4029

Another one on how moneysupply works - http://mises.org/daily/4631

Ron Paul's plan for parallel gold/silver standard - http://mises.org/daily/2826



A good video about history of gold-standard, fractional-reserve-banking & so on from an Austrian perspective

[Black Flag]

The Fed as Giant Counterfeiter

Exactly, Paul.

As the article states, money is only created at the FED, generally by buying T-bills.

The nuances are important because it highlights the problem precisely.

Just as you presented, it is NOT the FRN that is the issue - replace "gold bar" to be the money instead and STILL the fractional reserve system will pervert and damage the economy.

It is important to understand this because the gold bugs demand for a "gold based" economy will not fix a darn thing in this matter (it will fix another matter, however - but this one is the REAL problem - fractional reserve banking - that risk the massive undermining of the economy - in my opinion)

Further M1 is not money - it is IOU's denominated in money. The banking system, as it is today, insists on calling this money so to impart some legitimacy to M1 - but it is an illusion of historical evil.


Again, back to the monopoly game - as it really does help understand the system and its dangers:

The FED is holding all the real money ($100), and the bank has accounting entries saying it owes Steven a $100, Paul a $100 and Travlyr a $100 and that the bank is owed by BF $300.

If we view this from the banking system perspective, it is:
$300 it owes
$300 owes it.

Now, Paul, Steven and Travelyr moving their IOU's between them doesn't change a thing from the perspective of the banking system - whether Steven has IOU's worth $200, and Paul and Travelyr $50 each ... so what? says the banking system.

This trade of "fiduciary media" as Mises called it assumes the role of money, a role it has no business of assuming - and it is this trade of fiduciary media that is the real risk in the banking system..

[Steven Douglas]

Exactly, Paul.

As the article states, money is only created at the FED, generally by buying T-bills.

The nuances are important because it highlights the problem precisely.

Just as you presented, it is NOT the FRN that is the issue - replace "gold bar" to be the money instead and STILL the fractional reserve system will pervert and damage the economy.

It is important to understand this because the gold bugs demand for a "gold based" economy will not fix a darn thing in this matter (it will fix another matter, however - but this one is the REAL problem - fractional reserve banking - that risk the massive undermining of the economy - in my opinion)

Further M1 is not money - it is IOU's denominated in money. The banking system, as it is today, insists on calling this money so to impart some legitimacy to M1 - but it is an illusion of historical evil.


Again, back to the monopoly game - as it really does help understand the system and its dangers:

The FED is holding all the real money ($100), and the bank has accounting entries saying it owes Steven a $100, Paul a $100 and Travlyr a $100 and that the bank is owed by BF $300.

If we view this from the banking system perspective, it is:
$300 it owes
$300 owes it.

Now, Paul, Steven and Travelyr moving their IOU's between them doesn't change a thing from the perspective of the banking system - whether Steven has IOU's worth $200, and Paul and Travelyr $50 each ... so what? says the banking system.

This trade of "fiduciary media" as Mises called it assumes the role of money, a role it has no business of assuming - and it is this trade of fiduciary media that is the real risk in the banking system..

There is pretty much nothing wrong with what you wrote that I can see (especially about M1) which brings us full circle to the real problem - one that will NOT go away - and that is the very word "money"; how it's bastardized, how it's used and misused, but most importantly, how it is commonly used - which really is how words are defined, possession of the common usage being 9/10ths of lexicon law. AFAIK that is not ever going to change. You need words/terms that are specific enough not to be misconstrued by anyone (lay and expert simultaneously), or the problem will remain firmly and permanently in Obfuscation-ville.

Currency is a good catch-all (read="current", "circulating"). Fiduciary media is a good term, but not familiar to lay people. However, IMO, I don't think you can use the word money. Period. Ever. For anything. Because lay people will count the plastic, paper and coins in their pocket - the Fed will count multiple types (including M1) and call/define that as money. Many sound money advocates will only count commodities. But there will be no agreement, even though the terms will be bandied about as if everyone was on the same page.

[Black Flag]

There is pretty much nothing wrong with what you wrote that I can see

21 pages later, and we appear to be on the same page

[Steven Douglas]

21 pages later, and we appear to be on the same page

Words got in the way.

[Paul Or Nothing II]

Exactly, Paul.

As the article states, money is only created at the FED, generally by buying T-bills.

The nuances are important because it highlights the problem precisely.

Just as you presented, it is NOT the FRN that is the issue - replace "gold bar" to be the money instead and STILL the fractional reserve system will pervert and damage the economy.

It is important to understand this because the gold bugs demand for a "gold based" economy will not fix a darn thing in this matter (it will fix another matter, however - but this one is the REAL problem - fractional reserve banking - that risk the massive undermining of the economy - in my opinion)

I don't know which "goldbugs" you're talking about but most of the "goldbugs" here perfectly understand that FRB is the problem, gold is used for exemplification purposes because it allows people to understand the nature of money a lot better because when it comes to money as how people perceive it right now, they don't differentiate between central bank money & commercial bank money because both are fungible & laymen don't understand the banking system entirely but with gold (or fish, chips or whatever) the difficulties of the system become more obvious because gold & gold-receipts aren't the same thing

As I've said previously, you're just stuck on your definitions & your demand that everyone only use your definitions

You just want to call paper & coin as "money" but those themselves are merely "promises to pay" & so is all commercial bank money so there's little point in saying one kind of "promise to pay" is "money" & another kind of "promise to pay" is not So if you accept one as "money" then you should accept the other as "money" as well for consistency's sake & if you're going to reject one as "money" then reject the other too

Further M1 is not money - it is IOU's denominated in money. The banking system, as it is today, insists on calling this money so to impart some legitimacy to M1 - but it is an illusion of historical evil.

Again, back to the monopoly game - as it really does help understand the system and its dangers:

The FED is holding all the real money ($100), and the bank has accounting entries saying it owes Steven a $100, Paul a $100 and Travlyr a $100 and that the bank is owed by BF $300.

If we view this from the banking system perspective, it is:
$300 it owes
$300 owes it.

Now, Paul, Steven and Travelyr moving their IOU's between them doesn't change a thing from the perspective of the banking system - whether Steven has IOU's worth $200, and Paul and Travelyr $50 each ... so what? says the banking system.

This trade of "fiduciary media" as Mises called it assumes the role of money, a role it has no business of assuming - and it is this trade of fiduciary media that is the real risk in the banking system..

Again,
Central bank money = promise to pay
Commercial bank money = promise to pay

So there's no point in saying one is "money" & other isn't

Now, let me give you an example :
Let's say we get rid of all the paper & coins & only deal in checks, electronic transfers, cards, etc & there would STILL be central bank money which they'd issue & then commercial bank money which they bring into existence when they lend by pyramiding on central bank money & it's re-deposited & re-lent & so on BUT in your unique worldview "there's no money" because you think paper & coins is money - let me repeat, there's STILL central bank money & there's STILL commercial bank money, even though there's no paper or coins

Again, the point being that both central bank money & commercial bank money are just as fictional so saying one is "money" & the other isn't is preposterous

[Black Flag]

laymen don't understand the banking system entirely but with gold (or fish, chips or whatever) the difficulties of the system become more obvious because gold & gold-receipts aren't the same thing

As I've said previously, you're just stuck on your definitions & your demand that everyone only use your definitions

So your answer is to ignore the definitions and use what the confused layman use as definition.

Good plan - if you want to add to the confusion.

[Black Flag]

You just want to call paper & coin as "money" but those themselves are merely "promises to pay"

That's the point - no it is not.

Money is something that does not obligate someone else to pay or do something.

When I hold a dollar bill, there is no one who I have to hunt down to get payment or force someone to act on my behalf. Money stands on its own.

An IOU is not money, because for that IOU does obligate someone to actually do or pay something. The IOU value is not the IOU but the money or action that underwrites it. If there is no money or no action, the IOU has no value at all

You convoluting two -completely - different things adds to the confusion that the layman suffers - and makes solutions even more difficult to discuss, let alone implement.